Budget repair? Can the Government have its cake and eat it too?

On the 11th of May, Treasurer Josh Frydenberg will hand down the next Federal Budget. 

Prior to the COVID-19 pandemic, the Government had been preparing to hand down the first Budget in surplus since the Global Financial Crisis (GFC). How times have changed. 

Even during the roll-out of the first stimulus package in March 2020, it was clear that the Government’s philosophy towards the provision of stimulus was ‘measures are all temporary, targeted and proportionate to the challenge’ Australia faced. We’ve since seen major support mechanisms such as JobKeeper, JobSeeker and JobMaker that are time-limited to not become locked at a higher spending rate - a learning from the GFC. 

At some point we need to restock the fiscal pantry as fiscal policy is likely to play a greater role in absorbing future economic shocks given the low interest rate environment Australia finds itself in.

But a remarkable thing has happened. Something that wasn’t foreseen in last year’s October Budget. The Australian labour market, and the Australian economy more generally, has rebounded faster than projected. And so too, therefore, has Commonwealth government revenues.

With such an improved Budget position, this ‘windfall’ provides an ability for the Australian Government to increase spending in this year's Budget and still bring in a Budget bottom line that is below the 2020 Budget projections; it can be seen to have its cake and eat it too. 

Read the full article, including our Budget projections, here.

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